What is the purpose of subrogation in insurance?

• A. To calculate the total revenue
• B. To cover unpaid damages or damage to the car
• C. To assess average losses for the year
• D. To manage other costs more effectively

Answer: (B)

Subrogation in insurance serves to allow an insurer to seek reimbursement from a third party that is responsible for a loss after the insurer has paid out a claim to the policyholder. When an insurance company covers unpaid damages or damage to a vehicle, it may then pursue the party at fault for restitution. This process is essential for maintaining the financial stability of insurance companies and ensuring that premiums can be kept in check for policyholders.

The focus on recovering costs from the responsible party means that subrogation helps to minimize the overall loss experienced by the insurer. By pursuing subrogation, insurers can offset the expenses associated with claims, thereby allowing them to offer coverage without necessitating exorbitant rates. Therefore, understanding subrogation is crucial for appreciating how insurance operates to benefit both insurers and the insured.